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In podcast episode 1076, James continues his discussion on “Work Less, Make More,” that summarizes the book into two episodes. Listeners can get a free PDF of the book at JamesSchramko.com/book, purchase it on Amazon, or listen to it on Audible.
For context, James recommends listening first to Part 1, Episode 1075, where he discusses quality of life, team, and the offer that converts.
In this episode, 1076, James tackles the relation of the cash flow of a business and of business models to profitability and sustainability.
He talks about the impact of billing frequency and customer lifetime value on profit.
And he touches on the leveraging that is key to how to work less and make more.
Table of contents:
1. The all important cash flow
2. Getting paid what’s owed you
3. The essential Profit Formula
4. Why the small numbers are important
5. The costs that can creep in
6. A rule of thumb for reporting
7. What a client is worth in a lifetime
8. Is the ascension model where it’s at?
9. How can one department help another?
10. The right business model is key
11. Saying no to compromise
12. Take nothing at face value
13. Things you can optimize and leverage
14. Escaping the hustle and grind
The all important cash flow
In part 2 of the Work Less, Make More series, James delves into the crucial concept of cash flow. Cash, says James, is the lifeblood of any business and it’s important to get paid upfront. Money now is valuable and essential for business survival.
Just as he warns against delayed payment arrangements, James bids business owners beware the temptation to spend money as soon as it appears in the bank. There are costs, taxes, and reinvestments to consider first.
Sustainable cash flow is vital, especially for businesses looking to thrive beyond the five-year mark. This is especially relevant in dynamic and fluid marketplaces, where financial discipline and foresight is a must.
Getting paid what’s owed you
James advises businesses to put significant effort into collecting any money owed to them – it is their right to claim these funds. He recommends reducing or eliminating credit provisions over time, even in markets where delayed payments are common, noting that shorter payment terms are becoming more standard, and alternative payment options often exist even for corporate or government clients.
James also urges a shift away from hourly billing to project-based, recurring, or performance-based payments. Selling time by the hour is limiting, he says, and too much like having a job; businesses should aim for retainer agreements or commissions instead to maximize their earning potential. He himself would only consider an hourly rate in the range of $1000 or above.
The essential Profit Formula
After mastering sales, says James, the Profit Formula is perhaps the most important thing a business owner can learn. The formula is: leads or prospects times conversions equals customers, and customers multiplied by price, frequency, and margin equals profit. Detailed suggestions for improving each component can be found on page 163 of his book.
Why the small numbers are important
It’s important, James says, to focus on small numbers, such as conversions and purchase frequency, to achieve significant results. Doubling the conversion rate or increasing the frequency of purchases can dramatically boost profits, especially since the margin often improves on subsequent purchases, making recurring subscription models particularly effective.
James advises getting reports every 10 days on key metrics like leads, conversion rates, price points, and product lines, as well as tracking the frequency of purchases and customer churn rates.
While cutting costs is straightforward, it has limits, whereas improving these other areas can lead to unlimited growth.
Regularly reviewing profit and loss statements is essential for monitoring and optimizing these metrics.
The costs that can creep in
James warns that costs such as overtime, tool expenses, and other creeping costs need careful monitoring. He suggests periodically shopping around for better rates and negotiating lower fees with payment processors like PayPal or Stripe, which can lead to significant savings.
Repeat sales, James believes, are more valuable than first-time sales, as retaining and nurturing existing customers is more manageable and crucial for long-term success.
A rule of thumb for reporting
James suggests a simple rule for reporting: compare the current period (yesterday or this week) to a month ago and six months ago to quickly identify trends. This approach helps determine if you’re improving, declining, or stabilizing, providing an instant awareness of performance.
Without knowing your numbers, you’re essentially flying blind, which can lead to trouble, so having an early warning mechanism is crucial for timely interventions.
What a client is worth in a lifetime
Understanding customer lifetime value (CLV) in terms of profit rather than revenue is hugely useful, says James. By calculating the profit from a client, considering acquisition and fulfillment costs, and the duration of their stay, businesses can determine a client’s true worth.
For instance, a high-value client in a top-tier program could justify significant acquisition efforts, such as international travel and extended follow-ups. Conversely, for clients with a lower CLV, businesses might focus on strategies to increase their value, such as improving retention or upselling. This understanding helps tailor marketing efforts and optimize customer acquisition and retention strategies.
Is the ascension model where it’s at?
James explores the concept of the ascension model in marketing, where clients start with free content like a podcast or a free book and gradually progress to paid memberships or services.
While this model can be effective, James says it may not suit everyone, as some potential clients might be ready to invest in higher-level services immediately.
James cites brand examples like Rolex and Ferrari, which start at high price points without offering lower-priced entry options. He suggests that businesses should meet the market at the level that attracts the best clients for their skills, offering free content for broad engagement while providing high-value, customized services for those ready to invest.
How can one department help another?
Different departments within a business can support each other through interselling. James recalls his dealership experiences where departments like parts, service, finance, and new and pre-owned car sales could cross-sell to the same clients, enhancing overall customer engagement and sales.
James encourages businesses to explore similar opportunities for collaboration among their departments. By understanding customers’ needs and partnering with relevant suppliers, businesses can offer additional services, retaining customers more effectively.
Establishing referral fees or partnership agreements can further facilitate these cross-departmental and external collaborations, driving mutual growth and customer satisfaction.
The right business model is key
James’s book emphasizes the importance of selecting the right business model. He explains that while most people sell their time by the hour as employees, this approach lacks leverage and can limit financial growth.
Granted, not everyone should or can be an entrepreneur, but owning a business offers benefits such as higher yields per hour and tax advantages. James advocates for business models like recurring subscriptions, retainers, performance-based deals, and project-based models, which can significantly outperform hourly wages.
Episodes 1073 and 1074 of James’s podcast cover the Membership Mastery model, while Episode 1072 discusses royalty deals, which form a substantial part of his income and enable a minimal workweek with high returns.
James encourages listeners to evaluate and optimize their business models for better leverage, and offers his mentorship to help refine these models. He can share many a success story from his experience, such as building CopyChief.com with Kevin Rogers and working with other notable entrepreneurs like Ryan Levesque, that show the effectiveness of his strategies.
Saying no to compromise
In another chapter, James discusses the pitfalls of over-reliance on product launches. Wilco de Kreij, for instance, experienced strained relationships, cash flow issues, and stress due to frequent launches.
Launches can be exhausting and often unprofitable, leaving business owners in situations with worn-out email lists and high outgoing payments to partners.
James prefers evergreen selling methods instead of constant launches, which can be overused in the online space. While occasional launches can be beneficial for promotions or new releases, relying on them exclusively is risky. James has been involved in successful launches for others, such as a motor dealership, using the Jeff Walker Product Launch Formula. He advises, however, that this approach may not be suitable for everyone.
Take nothing at face value
James’s “no compromise” concept proposes questioning everything to avoid complacency, overconfidence, and potential arrogance that can arise with success. In his business, by serving as a sounding board, he helps clients challenge their assumptions and ensure they remain vigilant and innovative, preventing trouble through constant reassessment.
James advocates using first principles thinking to strip down and rebuild foundational concepts, promoting radical innovation as described in Eli Goldratt’s book, The Choice. This involves eliminating dependencies, like relying too much on Facebook ads, and exploring alternative methods such as strategic alliances, podcast guesting, or ramping up a YouTube channel to diversify and strengthen the business.
James also stresses the need to reduce single-source dependencies and prepare for scenarios where the business must operate without the owner’s direct involvement, using exercises like imagining a six-month absence. His Own The Racecourse strategy encourages controlling key aspects of the business, such as domain names and email databases, while leveraging other platforms without over-relying on them, ensuring greater stability and control.
Things you can optimize and leverage
Leverage is important in achieving success, says James, highlighting several key areas. First, leverage yourself by focusing on your goals and eliminating distractions to maximize your impact. Second, leverage your team to buy time and delegate tasks, allowing you to concentrate on high-value activities like serving clients.
Business model is also significant. James advises against frequently changing models in response to market trends. Instead, he suggests committing to a business model for more than two years to truly master and validate it. His own success with subscription memberships, revenue share deals, and podcasting exemplifies the benefits of sticking with effective models over the long term.
The ideal business model will, of course, vary based on individual skills and market conditions. James encourages finding a sustainable and profitable model that aligns with your strengths and market opportunities. Opportunity these days can be found in many different areas, from technology to niche hobbies.
Escaping the hustle and grind
One of the hopes James has for readers of his book is escape from the hustle and grind culture, balancing work with personal life. Sleep and personal identity sacrificed on the altar of business success do not make for happiness.
James believes that over time, even the most dedicated entrepreneurs will tire of relentless work. There is risk, he says, of losing oneself in business activities, and he advocates for daily enjoyment and maintaining a healthy “fun score”. Doing something you love each day, he maintains, can significantly improve well-being.
James invites listeners to share any changes they’ve made since listening to his Work Less Make More episodes. And if you’d like to scale your business from six figures upwards, consider joining James’s mentorship.
This podcast is brought to you by James’s partners, who you’ll find on his Products page. Tune in to future episodes and see what we’ve got for you.
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